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Tax Tips

Tax Reform?

The Congress Joint Conference Committee have reportedly reached agreement on a Tax Reform Bill that should be released soon.  It will be the biggest tax reform in 30 years.

We do not know all of the particulars of the Bill yet but below are a few tidbits:

  •   The top individual tax rate will be lowered from 39.6% to 37%
  • The top corporate tax rate will be lowered to 21%
  • The corporate alternative minimum tax (AMT) will be eliminated
  • The Individual Mandate for healthcare insurance will be eliminated
  • There will be a $10,000 limit on combined state/local income tax and property tax

If the Bill is signed into Tax Law before December 31, it will impact the 2018 year but NOT the 2017 tax year that we will be filing soon.  Stay tuned!!

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Senate Passes Tax Bill

The U.S. Senate passed its version of tax reform early Saturday morning by a vote of 51-49, with all Democrats, both independents and one Republican voting no on the bill.  The bill, as approved, differs significantly from the version released from the Senate Finance Committee last week.

The Senate Bill also differs from the House Bill approved November 17.  This means that the two houses will have to hold a conference committee to reconcile the differences between the bills.  Both Houses will then have to vote and approve the legislation as passed.

The Senate legislation retains the same seven tax brackets, although most are lowered through 2025 to 10%, 12%, 22.5%, 25%, 32.5%, 35%,and 38.5%.  The child tax credit would be increased to $2,000 per child, and the income limits would be increased.

The Senate Bill allows individuals to deduct 23% of “domestic qualified business income” from pass-through entities such as partnerships and S Corporations.

The Bill also allows a $10,000 deduction for state property taxes. This is similar to the House Bill. Both Bills do not allow deductions for state income taxes.

The Bill also keeps the estate tax but doubles the current exemption amount.  The House Bill would eliminate the estate tax starting in 2023.

The Senate Bill also keeps the deduction for medical expenses while the House Bill eliminates it.  The Bill set an adjusted gross income (AGI) threshold at 7.5%.

The Bill lowers the top corporate rate from 35% to 20% with an effective date of 2019.

The Senate Bill would also repeal the individual mandate, which imposes a penalty on individuals who do not have health insurance.  The House Bill does not repeal the mandate.

The Senate Bill adopted a revised Alternative Minimum Tax for corporations and individuals, rather than repealing it as the House Bill does.

The Senate Bill’s limit on interest deductions is much more restrictive than the House version.

Both Bills make major changes to the rules affecting U.S. companies’ foreign earnings and the rules for those payments.

The final Bill approved by both Houses of Congress may be very different.  However, the similarities are beginning to show what may appear.  Please stay tuned and I will update as we hear what happens.  Please call our office if you would like to meet as planning is so very important this year!


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How To Avoid Tax Traps with Inherited IRAs

An  inherited Individual Retirement Account (IRA) can be a tremendous boon to the beneficiary.  Who can’t use extra money in retirement!  Most inherited IRAs are cashed out within six months of the death of the family member.  If you do cash it out, there is no way for planning tax strategies! Without proper planning, federal and state taxes can take a sizable bite from the proceeds!

Options for Inherited IRAs:

  •  Take a lump sum distribution of the entire balance
  •   Roll the inherited IRA over into a new account and take the distributions over the longer of the life expectancy of the beneficiary or the decedent.

If the account owner died before reaching the date for RMDs (Required Minimum Distributions), the beneficiary has a third option of withdrawing all the funds by the end of the year containing the fifth anniversary of the decedent’s death (The Five Year Rule). In this case, the life expectancy of the beneficiary must be used.

Keep the Beneficiary Designation Up To Date!

Marriage, divorce and the birth of children can change estate plans.  The IRA will pass by beneficiary designation and not the Will.  Please make sure you keep the beneficiary as you want it.

Titling An Inherited IRA:

An inherited IRA must be titled with both the name of the decedent and the beneficiary plus the word “inherited”. For example, one might title an inherited IRA as “Jane Doe, deceased September 30, 2017, F/B/O Jimmy Doe, beneficiary”.  If you just change the name on the IRA, that is a “cash out” so DO NOT just retitle the inherited IRA to the beneficiary. Retitling the account is best done at the brokerage where the decedent held the IRA before the beneficiary rolls it over to his or her own brokerage.

If Decedent Had Turned 70 1/2 Years of Age and Started RMDs:

If the decedent had already turned age 70 1/2 and started taking required minimum distributions, the beneficiary MUST take the required minimum distribution before the end of that year or there is a 50% penalty and you still must take the distribution.


Consider the beneficiary’s age and if there are already ample retirement sources, converting the inherited IRA to a ROTH may be the way to go.

Please call our office BEFORE just cashing out the inherited IRA!


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Charitable Giving of your IRA Required Minimum Distribution

If you are age 70 1/2 or more and are required to take an “RMD” (Required Minimum Distribution) from your IRA, are you taking advantage of the option of donating that distribution to your favorite charity? Many of us make charitable contributions during the year.  If you have an IRA and are required to take a distribution because of your age, you can use a QCD (Qualified Charitable Distribution) and eliminate that income.  This QCD option applies only to IRA and not any company plans.  It also applies to inactive SEP and SIMPLE plans.

With a QCD, your Required Minimum distribution can go directly from your IRA to the charity.  This direct transfer takes care of the RMD but it is not included in your taxable income for that year.  There is no charitable deduction since you did not include it the income from the distribution.  Excluding these amounts from income can reduce adjusted gross income (AGI) as well as taxable social security and any itemized deductions that may be limited by that AGI

This QCD option became a permanent part of the Tax Law in 2015. There can be no benefit back to you because of the giving.  If you receive tickets or some small token of appreciation, it could disallow your benefit of the direct transfer so be careful when using this option.  If you have questions or want to learn more on this topic, please call our office.

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